The following table shows major risks which, in the judgment of the management, could have a material influence on the financial conditions, operating results and cash flows of the Nippon Air Conditioning Group, out of the factors affecting business and financial positions stated in our securities report. It should be noted that this table does not cover all the risks that our Group may face, and there remain other potential risks that are unknown at present. However, we did not include these risks in the table due to the difficulty in predicting, on reasonable grounds, when and to what extent such risks will arise, and how they could affect our group-wide operations if they do arise.

 

Our basic policy for group-wide risk management and corporate risk management systems are specified in the Risk Management Regulations. Under these regulations, the Risk Management Committee, chaired by a Director and comprised mainly of members of the Board of Directors, is working to control various factors that may interfere with our business operations and prevent risks from arising.

 

The descriptions of future events shown in the table are predictions based on the judgment of our Group as of the end of the relevant consolidated fiscal year, and thus contain many uncertainties. These predictions may turn out to be different from reality.

No.

Category

Risks

Risk Management Measures

1

External

business

environ-

ment

  • Decrease in incoming orders and stagnation or suspension of business operations due to global economic slowdown, financial crisis, war, natural disaster, climate change, or pandemic of infectious diseases.
  • Expand our services to reach a wide range of customers, especially large hospitals and manufacturing plants.
  • Place greater focus on customers with substantial needs for building facility maintenance and renovation.
  • Reduce environmental impacts to address environmental issues by offering solutions for energy saving, cost reduction and environmental improvement to customers whenever possible.
  • Facilitate business continuity planning (BCP) to prepare for large disasters such as the Nankai megathrust earthquake and pandemic of unknown infectious diseases.
  • Promote workstyle diversification by allowing employees to work from home or flexible hours to the extent possible.
  • Build the ability to provide sufficient manpower to cope with emergency situations, especially to meet the urgent needs of large hospitals for building facility maintenance and management.

2

Competi-

tive

environ-

ment

  • Rise in cost awareness among customers to cope with the change in external business environment that drives them to cut maintenance costs.
  • Increasing competition among companies for new orders.
  • Strengthen our corporate competitiveness by creating a business model with a high barrier to entry.
    • Offer services by flexibly taking advantage of being an independent corporate group with no obligations to any specific equipment manufacturer.
    • Respond quickly to customer needs and offer professional and reliable services leveraging our pool of some 2,500 technical personnel and business bases located in all prefectures in Japan and seven countries around the world.
    • Place greater focus on facilities with a special environment that requires high-level technical skills for maintenance and management.
    • Offer high-quality services to customers leveraging our ability to provide professional solutions and comprehensive support as well as technical prowess.

3

Manpower

  • Increasing competition in hiring due to the decline in working-age population in Japan.
  • Loss of trust of customers due to the degradation of technical and service quality resulting from shortage of manpower.
  • Deterioration of work environment due to shortage of manpower, and shortage of technical personnel and reduction of diversity in workforce due to increase in the number of employees resigning.
  • Promote various in-house projects (e.g. for strengthening competitiveness in hiring, increasing employee satisfaction, and improving work efficiency) to retain quality manpower and enhance the value of human capital.
  • Retain quality manpower and contribute to job creation by hiring foreign nationals both in Japan and abroad whenever possible.

4

Overseas

business

develop-

ment

  • Stagnation of overseas business operations due to such factors as: language barrier; geographical disadvantages; restrictions under local legal, taxation and/or other systems; political and/or economic disorder; unforeseen fluctuations in exchange rates; differences in business practice; and strike by local employees.
  • Competition in the local market.
  • Impairment loss due to failure to achieve business plan targets.
  • Continue to support overseas business operations by: collecting local information through affiliated organizations and in respective local markets; helping management departments in overseas business bases develop business in the local market; and conducting training for local employees through relevant domestic departments.
  • Differentiate ourselves from competitors by offering high-quality services, by fully leveraging our strength in offering professional solutions and comprehensive support.

5

Accidents

during

mainte-

nance /

renovation

work or

disasters

  • Human error by our employees that causes a loss to customers.
  • Repair work having to be undertaken during a warranty period for defects in building facility renovation work.
  • Legal action taken by customers.
  • Occurrence of loss that cannot be covered by our liability insurance or deterioration of our brand reputation due to loss of trust.
  • Strengthen our technical capabilities by developing well-organized training programs, such as a 10-year training curriculum for new employees, and offering OJT opportunities to help employees develop practical skills.
  • Review insurance coverage from time to time to ensure it is adequate for the current business operations.
  • Strengthen quality control and quality assurance capabilities at the Pharmaceutical Facilities Management Div. to create an optimal environment for pharmaceutical manufacturing facilities that require high-level technical skills for maintenance and management.

6

Specific

regulatory

require-

ments,

business

practices,

and

manage-

ment

policies

  • Loss of opportunities to participate in bidding for government contracts due to change in qualification.
  • Failure to win orders due to intensification of competition resulting from the introduction of the designated administrator system for privatization of government enterprises.
  • Devote greater efforts to acquiring new industrial customers by fully leveraging our strength of having business bases in all prefectures in Japan and seven countries around the world, while remaining focused on governmental customers.

7

Informa-

tion

manage-

ment

  • Accidental loss, leakage or falsification of important confidential information (such as technical and trade information), private information of stakeholders or other information in our possession.
  • Loss of social credibility, compensation for damages to affected stakeholders, obstacles to business activities.
  • Install our primary servers at a reliable data center to ensure the safety of information when hit by a large disaster.
  • Continue to upgrade the information security infrastructure and train all employees on information security.
  • Physically destroy any recording device on which important data is stored when disposing of it.

8

Internal

control

  • Failure in internal control as a result of: negligence, wrong judgment or collusion by the person in charge; change in internal or external business environment; non-routine transactions; consideration of relative costs and benefits; and misconduct by the management.
  • Likelihood of misconduct in the future and subsequent damage to the corporate value and loss of social credibility.
  • Build, run and promote an internal control system to increase corporate value effectively and efficiently.
  • Conduct compliance training for all employees to help enhance their sense of compliance and deepen their understanding of laws and regulations applicable to our business operations.
  • Create a corporate culture that values integrity and offer sufficient opportunities for dialogue.

Notes:

  1. “Facilities with a special environment” refer to hospitals, research institutions, manufacturing plants, and other special-purpose facilities.
  2. While the risk and risk management measures relevant to Covid-19 infection are stated in the category 1.External business environment, we are also taking various other measures to minimize the impact of Covid-19 under the leadership of the Risk Management Committee, e.g., by collecting relevant information and sharing it with employees on a group-wide basis from time to time.